FASB’s Conceptual Framework Summarized - Overall

FASB’s Conceptual Framework establishes concepts of underlying financial reporting. There are three levels.
 
Level 1: Objectives – providing information that is useful to present and potential equity investors, lenders, and creditors (underlying in their capacity as capital providers).
 
Therefore, for financial reporting to be useful, it must provide the useful information for investment decisions.
 
Level 2a: Qualitative Characteristics including Fundamental Qualities, and Enhancing Qualities
 
Level 2aa: Fundamental Qualities includes relevance and faithful representation.
 
Level 2aaa: Relevance is information helpful in making decision being Predictive Value, Confirmatory Value, and Materiality.

Predictive Value – Relevant information used by investors to form their own expectations
Confirmatory Value – Relevant information helping users confirm or correct prior expectations.
Materiality – information is material if omitting (and or misstating) could influence decisions relying on the financial statements.
 
Level 2aab: Faithful representation are that numbers and descriptions match exactly what happened, ensuring completeness, neutrality, and free from error.

Completeness – refers to all information that is necessary for faithful representations is provided.
Neutrality – is where a company cannot select information to favor one set of interest parties over another.
Free from error –  refers to more accurate faithful representation of a financial item.  
 
Level 2ab: Enhancing Qualities includes Comparability, Verifiability, Timeliness, and Understandability.

Comparability – refers to information that is measured and reported in a similar manner considered comparable (CONSISTENCY).
Verifiability – occurs when independent measurers, using same methods, obtaining similar results
Timeliness – refers information available to decision-makers before it loses relevance, or capacity to influence decisions
Understandability – refers to the quality of the information that lets reasonably informed users to see its significance.
 
Level 2b: Elements – This includes assets, liabilities, equity, investments by owners, distributions to owners, comprehensive income, revenues, expenses, gains/losses.
 
Level 3: Assumptions, Principles, and Constraints
 
Level 3a: Assumptions inclusive of economic entity, going concern, monetary unit, and periodicity.

Economic Entity – refers to a company that keeps its activity separate form its owners and other businesses
Going Concern – refers to a company that last long enough to fulfill objectives and commitment
Monetary Unit – refers to money as a common denominator
Periodicity – refers to a company dividing economic activities into time periods
 
Level 3b: Principles inclusive of Measurement, Revenue Recognition, Expense Recognition, and Full Disclosures.

Measurement principle – refers to the most commonly used measurements that are based on historical costs and fair value
Revenue Recognition – refers to the general occurrence when realized or realizable revenues are earned
Expense Recognition – Letting the expenses following the revenues
Full Disclosures – Providing information that is sufficient in influencing judgement and decisions for an informed user, inclusive of financial statements, notes to financial statements, and supplementary information.
 
Level 3c: Constraints inclusive of Cost and Industry Practice Constrains
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Cost Constraint – refers to cost of providing information must be weighed against the benefits from using it
Industry Practice Constraint – refers to the unique nature of an industry and business concerns sometimes that require any potential departure from accounting practice